{"id":68976,"date":"2021-03-25T11:54:15","date_gmt":"2021-03-25T09:54:15","guid":{"rendered":"https:\/\/www.sage.com\/en-za\/blog\/?p=68976"},"modified":"2026-01-29T15:46:09","modified_gmt":"2026-01-29T13:46:09","slug":"vat-toolkit-for-small-businesses","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-za\/blog\/vat-toolkit-for-small-businesses\/","title":{"rendered":"VAT toolkit for small businesses"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-za\/blog\/category\/strategy-legal-operations\/compliance\/\" class=\"entry-header__link\">Compliance<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tVAT toolkit for small businesses\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t<p class=\"entry-header__description\">\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2021-03-25T11:54:15+02:00\">March 25, 2021<\/time><\/span><span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"VAT toolkit for small businesses\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-za\/blog\/vat-toolkit-for-small-businesses\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n\n<div class=\"wp-block-post-author has-dark-background-color alignfull\">\n\t<div class=\"container\">\n\t\t<div class=\"col\">\n\t\t\t\t\t\t\t<div class=\"co-authors\">\n\t\t\t\t\t\n\t\t<div class=\"entry-author-wrapper\">\n\t\t\t<a class=\"entry-author\" href=\"https:\/\/www.sage.com\/en-za\/blog\/author\/yolandiesterhuizen\/\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"40\" height=\"40\" src=\"https:\/\/www.sage.com\/en-za\/blog\/wp-content\/uploads\/sites\/9\/2019\/07\/Yolandi-Esterhuizen-Sage-1-350x350.jpg\" class=\"entry-author__image\" alt=\"Yolandi Esterhuizen\" srcset=\"https:\/\/www.sage.com\/en-za\/blog\/wp-content\/uploads\/sites\/9\/2019\/07\/Yolandi-Esterhuizen-Sage-1-350x350.jpg 350w, https:\/\/www.sage.com\/en-za\/blog\/wp-content\/uploads\/sites\/9\/2019\/07\/Yolandi-Esterhuizen-Sage-1.jpg 512w\" sizes=\"auto, (max-width: 40px) 100vw, 40px\" \/>\t\t\t\t<span class=\"entry-author__name\">Yolandi Esterhuizen<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n<p>Understanding the nuances of <a href=\"https:\/\/www.sage.com\/en-za\/blog\/get-your-small-business-vat-ready\/\">Value Added Tax<\/a> (VAT) can mean the difference between a business that thrives and one that struggles to survive.<\/p>\n\n\n\n<p>In this article, we unpack the fundamentals of VAT, how it might apply to your small business, and when to register for VAT. We also cover important VAT do&#8217;s and don\u2019ts to help you avoid potential pitfalls.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-vat\"><strong>What is VAT?<\/strong><\/h2>\n\n\n\n<p>VAT was introduced in South Africa in September 1991, replacing a pre-existing regime known as the General Sales Tax (GST). VAT is an indirect tax based on consumption in the economy. This means it is levied on goods and services, not on your personal income or corporate profits. VAT is currently levied at the standard rate of 15% on most supplies and importations, but there is a limited range of supplies of goods or services which are either exempt or which are subject to tax at the zero rate.<\/p>\n\n\n\n<p>Once you\u2019re registered as a VAT vendor (we\u2019ll deal with <em>when<\/em> to register in a moment),<\/p>\n\n\n\n<p>vendors are charged with the responsibility of levying VAT (<strong>output tax<\/strong>) and paying it over to the SARS after deducting permissible VAT <strong>inputs <\/strong>and other deductions.<\/p>\n\n\n\n<p>To illustrate &#8211; let\u2019s say your small business manufactures and sells eco-friendly bicycles (see Figure 1). Here is how VAT comes into play:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It costs R800 (excluding VAT) to make one bicycle.<\/li>\n\n\n\n<li>You\u2019d like to make R200 profit per unit, so you sell the bicycles for R1,000 (excluding VAT) each.<\/li>\n\n\n\n<li>As a VAT vendor, you must add 15% to your selling price, taking the selling price to R1,150.<\/li>\n\n\n\n<li>The additional VAT amount of R150 (1000*15%) that you\u2019ve collected from the buyer is known as <em>output tax.<\/em><\/li>\n<\/ul>\n\n\n\n<p><strong>Figure 1: Example of VAT Financial Implications&nbsp;<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"494\" height=\"252\" src=\"https:\/\/www.sage.com\/en-za\/blog\/wp-content\/uploads\/sites\/9\/2021\/03\/VAT-Table.png\" alt=\"\" class=\"wp-image-68977\"\/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p>Output tax creates a VAT liability because you now owe that money to SARS.<\/p>\n\n\n\n<p>However, as a VAT vendor, you can reduce your VAT liability by deducting <em>input tax<\/em>. This is the amount of VAT you paid on the expenses you incurred to manufacture the bicycle. In this case, your input tax would be R120 (800*15%). If you had bought the bicycles for R800 (including VAT), the denominator for your input would be different, as the VAT amount would be included in the R800 (i.e., 800*15\/115).<\/p>\n\n\n\n<p>By offsetting your output and input tax, your VAT liability is reduced to R30.<\/p>\n\n\n\n<p>You\u2019d then submit your VAT return to SARS, detailing both your input and output tax, along with a payment of R30.<\/p>\n\n\n\n<p>Sounds simple, right? Not entirely, here we\u2019ve used a simple example to illustrate the basics of VAT. But in the real world, not all goods and services are classified as standard-rated supplies that attract VAT. There are also zero-rated and exempt supplies, which complicates things.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-vat-nuances-to-know-about\"><strong>VAT nuances to know about<\/strong><\/h2>\n\n\n\n<p>There may be instances where you won\u2019t be able to charge output tax on the goods or services you sell, nor will you be able to deduct input tax for the expenses you incur. Let\u2019s explore zero-rated and exempt supplies in the context of your eco-friendly bicycle business.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-zero-rated-supplies\"><strong>Zero-rated supplies<\/strong><\/h3>\n\n\n\n<p>Your bicycles have gained international acclaim, and you\u2019ve begun exporting them. Assuming a direct export arrangement \u2013 where you take full responsibility for delivering the bicycle to the buyer in another country \u2013 your bicycle would be classified as a zero-rated product, so you\u2019d charge 0% VAT on your tax invoice.<\/p>\n\n\n\n<p>Note that zero-rated supplies are still considered \u2018taxable\u2019 \u2013 we\u2019ll make sense of this when we look at exempt supplies in the next section. The result is that, even though you\u2019re charging 0% VAT on your bicycle, meaning you collect no output tax, you are still allowed to claim back the VAT you incurred (input tax) in its production.<\/p>\n\n\n\n<p>Theoretically, if all the bicycles you produced were exported, SARS would probably owe you a VAT refund due to your input tax exceeding your output tax.<\/p>\n\n\n\n<p>More generally, our government applies a zero-rating to certain goods and services, like basic food items, to bring down the living expenses of lower-income households.<\/p>\n\n\n\n<p>Obviously, if you\u2019re <em>buying<\/em> zero-rated supplies to make your bicycle, there won\u2019t be any input tax for you to claim.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-exempt-supplies\"><strong>Exempt supplies<\/strong><\/h3>\n\n\n\n<p>You\u2019ve decided to change your bicycle business model to a hire-only proposition. As a result, your bicycles are now categorised as public transport (a stretch, but bear with us), making them exempt from VAT. Under the exempt classification, your bicycle is not considered a taxable supply.<\/p>\n\n\n\n<p>While the net effect on your customer\u2019s invoice is the same (you don\u2019t add VAT), selling an exempt supply has one notable difference: you are not permitted to claim the VAT you paid (input tax) to develop the bicycles for hire. In essence, if your business only sells exempt supplies, you won\u2019t be allowed to register for VAT.<\/p>\n\n\n\n<p>Other examples of VAT-exempt goods and services include non-fee-related financial services, educational and training services, charitable fundraising events, residential rental accommodation, and the selling, leasing, and letting of commercial property.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-when-should-you-register-for-vat\"><strong>When should you register for VAT?<\/strong><\/h3>\n\n\n\n<p>In the first years of your business, you\u2019ll want to focus on providing an excellent service or product. So, for many budding businesses, registering for VAT is often undesirable. The accompanying administrative responsibilities \u2013 like submitting monthly VAT returns \u2013 detract from developing the core business product.<\/p>\n\n\n\n<p>The VAT legislation provides some relief in this regard. Your small business is only required to register for VAT if the taxable supplies made or to be made, is over R1 million in any consecutive twelve-month period.<\/p>\n\n\n\n<p>But there are certain instances where you might want to register for VAT voluntarily \u2013 the only prerequisite being that taxable supplies made in the past period of twelve months exceeded R50 000.<\/p>\n\n\n\n<p>Some of the primary reasons you may consider voluntarily registering as a VAT vendor include:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Your business sells mostly zero-rated supplies<\/strong>. Remember that you\u2019ll still be able to claim back the VAT on the standard-rated supplies you buy to make your zero-rated product or service. And with no output tax, you may qualify for a VAT refund from SARS.<\/li>\n\n\n\n<li><strong>Large capital expenditure is necessary<\/strong>. If your business needs to buy vehicles, equipment, or property, you\u2019ll need a substantial deposit. Being a VAT vendor, you can claim back the VAT charged on those items.<\/li>\n<\/ol>\n\n\n\n<p>It\u2019s worth reiterating that if your business sells exempt supplies, you will not be allowed to register for VAT, nor will you be able to claim any input tax from SARS. You\u2019ll need to set your product\/service price to account for the non-refundable input tax you\u2019ll incur.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-basic-vat-do-s-and-don-ts\"><strong>Basic VAT do&#8217;s<\/strong><strong> and don&#8217;ts<\/strong><\/h2>\n\n\n\n<p>Here is a list of basic rules once you become a VAT vendor:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Find out which VAT cycle applies to your business and <a href=\"https:\/\/www.sage.com\/en-za\/blog\/a-tax-guide-for-your-first-year-in-business\/\">submit your VAT return and payment<\/a> within 25 days of the end of your cycle.<\/li>\n\n\n\n<li>Late VAT submissions and payments attract penalties and interest on the amount owed, so don\u2019t leave the work to the last minute.<\/li>\n\n\n\n<li>Include a VAT line item on all your quotes and invoices, even if the supply is classified as zero-rated (this won\u2019t change the final selling price).<\/li>\n\n\n\n<li>Make sure the words \u2018Tax Invoice\u2019 appear on every invoice.<\/li>\n\n\n\n<li>Be extra cautious not to inflate your input tax claims to reduce your VAT liability \u2013 this is illegal.<\/li>\n\n\n\n<li>Make sure that the revenue you report in your financial statements matches the revenue you\u2019ve declared on your VAT returns.<\/li>\n\n\n\n<li>Always submit your VAT returns, even if there\u2019s no VAT due to SARS.<\/li>\n\n\n\n<li>All your invoices must include your VAT number and that of your customer if they are a registered VAT vendor. You must also include their name and physical address.<\/li>\n\n\n\n<li>VAT must be charged on any commissions earned or paid.<\/li>\n\n\n\n<li>If you have an irrecoverable bad debt that\u2019s been written off, you can claim back any VAT already paid to SARS for the invoice in question.\n<div class=\"single-cta gated-content\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Quick start guide to Payroll Tax Year-End <\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>We understand your day-to-day challenges; which is why we want to try and make your business life easier. We\u2019ve prepared this guide to help you work more efficiently, giving you more time to do what you do best \u2013 run, manage and grow your business.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-7b1755c6-efc9-4e6f-bcd5-14742c0aca55\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Download your guide<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1215\" height=\"810\" src=\"https:\/\/www.sage.com\/en-za\/blog\/wp-content\/uploads\/sites\/9\/2020\/10\/iStock-1249866014-1215x810.jpg\" class=\"single-cta__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-za\/blog\/wp-content\/uploads\/sites\/9\/2020\/10\/iStock-1249866014-1215x810.jpg 1215w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n<\/li>\n<\/ul>\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to the Sage Advice enewsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>Get a roundup of our best business advice in your inbox every month.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-84fe79b5-668d-41f8-a0cc-6229018c4ac9\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-za\/blog\/wp-content\/uploads\/sites\/9\/2022\/04\/GettyImages-1181404518-1440x810.jpg\" class=\"single-cta__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-za\/blog\/wp-content\/uploads\/sites\/9\/2022\/04\/GettyImages-1181404518-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Understanding the nuances of Value Added Tax (VAT) can mean the difference between a business that thrives and one that struggles to survive. In this article, we unpack the fundamentals of VAT, how it might apply to your small business, and when to register for VAT. We also cover important VAT do&#8217;s and don\u2019ts to [&hellip;]<\/p>\n","protected":false},"author":813,"featured_media":68729,"menu_order":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sage_video":false,"post_featured_image_hide":false,"footnotes":""},"categories":[35],"tags":[294,321],"business_type":[2],"lilypad":[],"context":[],"industry":[],"persona":[6,16],"imagine_tag":[99,85],"coauthors":[408],"class_list":["post-68976","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-compliance","tag-accountants","tag-compliance","business_type-small-business"],"sage_meta":{"region":"en-za","author_name":"Yolandi Esterhuizen","featured_image":"https:\/\/www.sage.com\/en-za\/blog\/wp-content\/uploads\/sites\/9\/2020\/07\/sage-bright-path-chosen-49-scaled.jpg","imagine_tags":{"99":"HR software","85":"Small business"}},"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice South Africa","distributor_original_site_url":"https:\/\/www.sage.com\/en-za\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/posts\/68976","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/users\/813"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/comments?post=68976"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/posts\/68976\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/media\/68729"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/media?parent=68976"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/categories?post=68976"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/tags?post=68976"},{"taxonomy":"business_type","embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/business_type?post=68976"},{"taxonomy":"lilypad","embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/lilypad?post=68976"},{"taxonomy":"context","embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/context?post=68976"},{"taxonomy":"industry","embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/industry?post=68976"},{"taxonomy":"persona","embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/persona?post=68976"},{"taxonomy":"imagine_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/imagine_tag?post=68976"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.sage.com\/en-za\/blog\/api\/wp\/v2\/coauthors?post=68976"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}